Layoffs & Extending a Fixed Term Contract

[Aleesha Van Damme]

#96830

Forum: Private

Hello there,

This is a quick question relating to something I’ve never encountered before.

I have an employee on a fixed-term employment contract. The contract had been extended several times and has since expired yesterday. Although we would like to lay off this employee because we expect work to pick back up in a couple of weeks. Can I extend his contract again and then lay him off simultaneously? Ideally, to preserve his employment and health benefits with the company over the next couple of weeks.

In my mind, we would have had to extend his contract prior to it expiring.

Thank you for the help with this one!

Aleesha Van Damme

[Haley O’Halloran]

#96831

Hi Aleesha!

You’re right to suspect there are a couple of key timing and legal pitfalls here.
Here’s how this generally works in Canada, along with what your options might be.

1. Contract Expiry and Retroactive Extension

Once a fixed-term contract expires, the employment relationship legally ends unless:

You have continued the person working beyond the expiry date, which can trigger an implied extension or conversion to an indefinite-term contract under employment standards/common law; or

You execute a new contract starting immediately after the last one ends.

You cannot backdate an extension to before the expiry date unless it’s clearly documented and agreed in writing — otherwise it risks being considered a fresh contract or even evidence that they’ve been a continuing, permanent employee.

2. Layoff Rules for Fixed-Term Employees

If an employee is truly on a fixed-term contract, a layoff doesn’t usually make sense — their employment ends at the contract end date.

If you extend the contract and then immediately place them on a temporary layoff, they will need to meet Employment Standards Act rules for temporary layoffs:

In BC, a temporary layoff can last up to 13 weeks in any 20-week period without triggering termination pay.

The layoff must be for a reason recognized under the ESA (e.g., shortage of work).

You need the employee’s written agreement to the layoff if it’s not in the original contract.

If the layoff is not ESA-compliant, it can be deemed a termination, triggering notice or pay in lieu.

3. Health Benefits During a Layoff

Many employers keep benefits active during a temporary layoff, but:

Your benefits provider must agree to continued coverage.

Some plans only allow coverage if the employee is still “actively employed,” so you’d need written confirmation from the insurer before proceeding.

4. Practical Options

Best practice: If you truly want them back in a couple of weeks and want to maintain benefits, you might:

Sign a short new fixed-term contract starting immediately, covering the gap until work resumes.

Continue paying them (even if not working) so employment status and benefits remain intact.

Alternative: Execute a new contract now and issue a compliant temporary layoff notice with written agreement, keeping benefits active per the insurer’s approval.

5. Risk Considerations

Multiple contract extensions over time can make it easier for an employee to argue they’re really an indefinite-term employee — which means they’d be entitled to regular termination notice/pay.

Retroactive changes after expiry are high risk if challenged.

If the goal is benefits continuity without triggering a deemed termination, the safest route is to keep them as an active employee under a valid current agreement.

I hope this helps!
-HRInsider Staff

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